Downsizing can hurt if you don’t review costs
Recently my attention was drawn to the situation of a retiree who is facing mounting maintenance and other costs for her apartment dwelling.
This elderly citizen and her husband purchased their home in the Corporate Area for their retirement years. They elected to live at an apartment complex, in keeping with their retirement dream of ease and security. However, her husband passed away while they were still employed. With an empty nest and mortgage-free a life of comfort and peace of mind meant a lot to her. But the feeling of tranquility has been shattered and replaced with worry. There is no way this senior would have thought that the maintenance and insurance cost would have been at levels that are equivalent to paying a mortgage.
The monthly maintenance is $45,100. This amount covers security, insurance and maintenance of common areas. Previously, the maintenance fee would cover property tax, gas and water. However, for the past few years homeowners have been asked to shoulder the responsibility of these bills independently. Each owner must pay property tax, water, electricity, telephone, laundry tokens (common laundry area with washers and dryers) on their own. A separate fee has to be paid by each owner for an electronic gate, painting of apartments, individual water heaters and paving of common areas. This 83-year-old is a retired school principal who is now thankful for the support of family members.
The situation outlined above is a growing concern for adult children and seniors who choose to live in gated complexes for the security and varied amenities that such homes provide. In Jamaica there are numerous housing developments designed as gated communities. Some of these dwellings are condominiums and townhouses, and security, amenities, transportation, proximity to hospitals, etc, are major reasons that these homes are in demand and more and more retirees who are downsizing see these dwellings as providing the haven they desire in retirement.
Working adults should, however, plan carefully regarding their retirement home and the projected costs. The projected costs should be factored into any retirement plan. This is another reason that saving and investing should be actioned by all employed persons. Long-term investing is crucial to meet the rising cost of living. The cost of property maintenance and insurance can increase at alarming rates. News reports said that in 2023 overseas-based reinsurers increased property insurance by up to 40 per cent. Less than 50 per cent of homes in Jamaica are insured and many are underinsured. If there is a major disaster, people who have properties that are underinsured or uninsured run the risk of not being able to repair or rebuild and even recover from losses suffered.
One middle-aged worker shared with me recently that the insurance rates on her home are linked to her mortgage payment. The insurance rates were increased as follows:
•As at Jan 1, 2023, rate increased from 0.5 per cent to 0.575 per cent of replacement value of building.
•As at Jan 1, 2024, there will be an additional increase on the rate to 0.75 per cent of the replacement value of the building.
As a result of the foregoing her monthly mortgage will increase by roughly 40 per cent, as at Jan 31, 2024. This adult professional is in a quandary as to how to contend with the current situation while earning a fixed income. She now contemplates having a second stream of income, while she continues to invest and curtail discretionary spending, such as eating out and travel.
As was mentioned and encouraged in last week’s column, there is a necessity for the employed to invest through “thick and thin” for the long term. The future is unpredictable and so is the weather. We therefore need to have our financial umbrellas in place for a rainy day. Financial and retirement planning is much more than just having a pension plan and a savings account.
In a conversation Friday with a retiree, she stressed that people should plan for retirement; it should not be left to chance.
I am encouraging homeowners to read carefully and understand property covenants. People who are planning to downsize their homes should weigh the pros and cons and review all current and potential costs. A two-bedroom in an apartment complex may cost twice as much as a four-bedroom located in a residential community. Seek the counsel of an experienced and professional financial advisor in your financial and retirement planning.
Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at: gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at: firstname.lastname@example.org